Aggrieved By That, The Assessee Preferred An Appeal Tothe Cit(A), Who, By An Order Dated 30.9.2009, Followed Thedecision Of The Special Bench Of The Delhi Tribu v. The Dy. Commr. Of Income Tax

In the High Court of Judicature at MadrasDated : 13.12.2018 Coram : The Honourable Mr.Justice T.S.SIVAGNANAMand The Honourable Mr.Justice N.SATHISH KUMAR Tax Case Appeal No.154 of 2011 M/s.Sundaram Finance Ltd.,Chennai-2...AppellantVs. The Deputy Commissioner of Income Tax, Large Tax Payer Unit, Chennai-101. ...Respondent APPEAL under Section 260A of the Income Tax Act, 1961against the order dated 25.6.2010 made in ITA.No.1935/Mds/2009on the file of the Income Tax Appellate Tribunal, Madras 'B'Bench for the assessment year 1998-99 against the order dated30/09/2009 made in ITA No.18/2008-09/LTU(A) on the file of theCommissioner of Income Tax (Appeals), Larger Tax payer Unit, IIFloor, 1775, Jawarharlal Nehru Inner Ring Road, Anna Nagar,Western Extension, Chennai - 101 against the order dated27/12/2007 in PAN/GIR No. /SU-48 on the file of theAssistant Commissioner of Income Tax, Company Circle VI(4),Mahatma Gandhi Road, Chennai - 34 for the Assessment year 1998-99. For Assessee : Mr.Vijayaraghavan for M/s.Subbaraya Iyer Padmanabhan For Revenue : Mrs.R.Hemalatha, SSCJUDGEMENTJudgment was delivered by T.S.SIVAGNANAM,J This appeal filed by the assessee under Section 260A of theIncome Tax Act, 1961 (hereinafter referred to as the Act)against the order dated 25.6.2010 made in ITA.No.1935/Mds/2009on the file of the Income Tax Appellate Tribunal, Madras 'B'Bench (for brevity, the Tribunal) for the assessment year 1998-99. https://hcservices.ecourts.gov.in/hcservices/ 2. The appeal was admitted on 04.7.2011 on the followingsubstantial questions of law : “i. Whether, on the facts and in thecircumstances of the case, the Tribunal wasjustified in confirming the levy of interestunder Section 234D? ii. Whether, on the facts and in thecircumstances of the case, the provisions ofSection 234D introduced with effect from01.6.2003 is applicable for the assessmentyears prior to assessment year 2004-05? and iii. Whether interest under Section 234Dcan be charged for the first time in arevision passed under Section 143(3) readwith Section 254 giving effect to theTribunal's order?” 3. The brief facts leading to the filing of this appeal areas follows : The assessee is engaged in the business of hire purchasefinancing, equipment leasing and allied activities. For theassessment year under consideration namely 1998-99, the assessfiled a return of income on 30.11.1998 declaring a total incomeof Rs.50,38,16,950/-. This return was accepted vide intimationunder Section 143(1)(a) of the Act. The case was selected forscrutiny and a notice under Section 143(2) of the Act was issuedon 08.6.1999. The scrutiny assessment was completed underSection 143(3) of the Act on 30.3.2001 determining the totalincome at Rs.79,16,75,880/-. While completing the assessment,the Assessing Officer made various additions and disallowances. 4. Aggrieved by that, the assessee preferred an appeal tothe Commissioner of Income Tax (Appeals) [for short, the CIT(A)], who, by order dated 24.10.2001, partly allowed the appealby following the order passed in the assessee's own case for theassessment year 1995-96. As against the same, the assessee aswell as the Revenue preferred appeals before the Tribunal inITA.Nos.1434/Mds/2001 and 54/Mds/2002. The Tribunal, by a commonorder dated 31.7.2006, partly allowed those appeals and theorder dated 31.7.2006 has also attained finality. 5. Subsequently, the Assessing Officer passed a revisionorder under Section 143(3) read with Section 254 of the Actgiving effect to the order of the Tribunal dated 27.12.2007determining the total income at Rs.49,76,93,255/-. Thereafter,by another order dated 20.6.2008, a rectification order waspassed under Section 154 of the Act with regard to thedisallowance of provision of NPA and contingency deposit, which,according to the Assessing Officer, were inadvertently omitted. 5. Subsequently, the Assessing Officer passed a revisionorder under Section 143(3) read with Section 254 of the Actgiving effect to the order of the Tribunal dated 27.12.2007determining the total income at Rs.49,76,93,255/-. Thereafter,by another order dated 20.6.2008, a rectification order waspassed under Section 154 of the Act with regard to thedisallowance of provision of NPA and contingency deposit, which,according to the Assessing Officer, were inadvertently omitted. Thus, the total income was determined at Rs.54,13,12,386/- apartfrom levying interest under Section 234D of the Act, whichprovision was introduced with effect from 01.6.2003 amounting toRs.67,87,554/- from 01.6.2003 to 30.6.2008. 6. Aggrieved by that, the assessee preferred an appeal tothe CIT(A), who, by an order dated 30.9.2009, followed thedecision of the Special Bench of the Delhi Tribunal in the caseof ITO Vs. Ekta Promoters Private Limited [reported in (2008)113 ITD 719] and held that the interest under Section 234D couldnot be charged prior to the assessment year 2004-05. Aggrievedby that, the Department preferred an appeal to the Tribunal. TheTribunal, by following the decision of the Kerala High Court inthe case of CIT Vs. Kerala Chemicals and Proteins Limited[(2010) 323 ITR 584], allowed the appeal by order dated25.6.2010. As against that, the assessee is before us by way ofthis appeal. 7. Mr.Vijayaraghavan, learned counsel appearing for theappellant/ assessee contends that the Tribunal failed to notethat Section 234D of the Act, which deals with levy of intereston excess refund, was introduced only with effect from 01.6.2003and that the same is not applicable for the assessment fallingprior to the assessment year 2004-05. It is further contendedthat the decision in the case of Kerala Chemicals and ProteinsLimited is not applicable to the facts of the present case,which the Tribunal failed to note. 8. The learned counsel for the assessee has pointed out thatin the decision in the case of Kerala Chemicals and ProteinsLimited, the Kerala High Court observed that the Revenue had noanswer to the query made by the Court as to whether interestunder Section 234D of the Act could be levied in cases ofregular assessment completed under Section 143(3) of the Actprior to 01.6.2003 leading to demand of refunded amount as taxdetermined on regular assessment. By relying upon thisobservation, it is submitted that no interest could have beenlevied as done by the Assessing Officer for the first time byway of a rectification order. 9. It is also submitted that the regular assessment in theassessee's case under Section 143(3) of the Act was completed on30.3.2001 i.e. prior to 01.6.2003 and therefore, interest underSection 234D of the Act could not be charged. In support of thiscontention, the learned counsel has placed reliance on thedecision of the Hon'ble Supreme Court in the case of CIT-I Vs.Reliance Energy Limited [reported in (2013) 358 ITR 0371]. Thelearned counsel for the assessee has also invited our attentionto the Memorandum Explaining the Provisions in the Finance Bill,2012 and in particular Clause 85, with regard to charging of interest on recovery of refund granted earlier. On the abovegrounds, the learned counsel submits that the order passed bythe Tribunal calls for interference and that the questions oflaw may be answered in favour of the assessee. interest on recovery of refund granted earlier. On the abovegrounds, the learned counsel submits that the order passed bythe Tribunal calls for interference and that the questions oflaw may be answered in favour of the assessee. 10. Per contra, Mrs.R.Hemalatha, learned Senior StandingCounsel for the Revenue has sought to sustain the order passedby the Tribunal on different grounds. It is her submission thatSub-Section (2) clearly states that where, as a result of anorder under Section 154 or Section 155 or Section 250 or Section254 or Section 260 or Section 262 or Section 263 or Section 264or an order under Section 245D(4) passed by the SettlementCommission, the amount of refund granted under Sub-Section (1)of Section 143 of the Act is held to be correctly allowed,either in whole or in part, as the case may be, then, theinterest chargeable, if any, under Sub-Section (1) of Section234D of the Act shall be reduced accordingly. 11. It is her further submission that the order passed underSection 154 of the Act dated 20.6.2008 levying interest underSection 234D for the amount of refund, which was reduced, isvalid and accordingly, the Department is entitled to demandinterest as mentioned in the order dated 20.6.2008. To supportsuch a contention, the learned Senior Standing Counsel reliesupon Explanation (2) to Section 234D of the Act and submits thatthe provisions of this Section will apply also to any assessmentyear commencing before the first day of June 2003 if theproceedings in respect of such assessment year is completed onthe said date. 12. She has placed reliance on the decision of the FullBench of this Court in the case of State of Tamil Nadu Vs.Arulmurugan & Co. [reported in (1982) 81 STC 381] to support hercontention that an appeal is a continuation of the process ofassessment and an assessment is but another name for adjustmentof the tax liability to accord with taxable event in theparticular tax payer's case. Thus, it is her submission that anorder under Section 154 of the Act should be construed as acontinuation of the assessment proceedings and by applyingExplanation (2) to Section 234D of the Act, the levy of interestis just and proper. 13. We have elaborately heard the learned counsel for theparties and perused the materials placed on record. 14. Section 234D of the Act was inserted by the Finance Act,2003 with effect from 01.6.2003. Sub-Section (1) of Section 234Dreads as follows: “In terms of Sub-Section (2) of Section234D, where any refund is granted to theassessee under Sub-Section (1) of Section143, (a) no refund is due on regularassessment; or (b) the amount refunded under Sub-section (1) of Section 143 exceeds theamount refundable on regular assessment, the assessee shall be liable to pay simpleinterest on the whole or the excess amountso refunded at the rate of one-half percent, for every month or part of.” 15. Sub-Section (2) of Section 234D of the Act deals withcontingencies where, as a result of an order under Section 154or other provisions mentioned therein, the amount of refundgranted under Sub-Section (1) of Section 143 is held to becorrectly allowed, either in whole or in part, as the case maybe, then, the interest chargeable, if any, under Sub-Section (1)of Section 234D shall be reduced accordingly. Explanation (2)was inserted by the Finance Act, 2012 with retrospective effectfrom 01.6.2003, which declared that the provisions of Section234D shall also apply to an assessment year commencing before01.6.2003, if the proceedings in respect of such assessment yearis completed after the said date. 15. Sub-Section (2) of Section 234D of the Act deals withcontingencies where, as a result of an order under Section 154or other provisions mentioned therein, the amount of refundgranted under Sub-Section (1) of Section 143 is held to becorrectly allowed, either in whole or in part, as the case maybe, then, the interest chargeable, if any, under Sub-Section (1)of Section 234D shall be reduced accordingly. Explanation (2)was inserted by the Finance Act, 2012 with retrospective effectfrom 01.6.2003, which declared that the provisions of Section234D shall also apply to an assessment year commencing before01.6.2003, if the proceedings in respect of such assessment yearis completed after the said date. 16. The argument of the Revenue before us largely hingesupon the expression “if the proceedings in respect of suchassessment year” occurring in Explanation (2) and by referringto the same and reading Sub-Section (2) of Section 234D of theAct, it is the submission of Mrs.R.Hemalatha, learned SeniorStanding Counsel for the Revenue that interest is chargeable. 17. To get clarity on the issue, when Explanation (2) wasinserted by the Finance Act, 2012 with retrospective effect from01.6.2003, we will have to look into the Memorandum Explainingthe Provisions in the Finance Bill, 2012. The issue relating tocharging of interest on recovery of refund granted earlier isdealt in Clause 85 of the Memorandum, which reads as follows : “Charging of interest on recovery ofrefund granted earlier Under the existing provisions of Section234D of the Income-tax Act (inserted witheffect from 1.6.2003, vide Finance Act,2003), where any refund has been granted tothe assessee under Sub-Section (1) ofSection 143 and subsequently on regular https://hcservices.ecourts.gov.in/hcservices/ assessment, no refund or lesser amount ofrefund is found due to the assessee, then,the assessee shall be liable to pay simpleinterest at the rate of one-half per cent onthe excess amount so refunded for the periodstarting from the date of refund to the dateof such regular assessment. In a recent decision of the Court, ithas been held that the provisions of Section234D inserted with effect from 1.6.2003would be applicable from the assessment year2004-05 only and accordingly no interestcould be charged for earlier assessmentyears even though the regular assessmentsfor such years were framed after 1st June,2003 or refund was granted for those yearsafter the said date. This is not in conformity with thelegislative intent of the provision. It is, therefore, proposed to clarifythat the provisions of Section 234D would beapplicable to any proceeding which iscompleted on or after 1st June, 2003,irrespective of the assessment year to whichit pertains. This amendment will take effectretrospectively from the 1st day of June,2003. [Clause 85].” 18. A reading of the above Memorandum shows that insertionof Explanation (2) was necessitated on account of a decision ofthe Court, which held that the provisions of Section 234Dinserted with effect from 1.6.2003 would be applicable from theassessment year 2004-05 only and accordingly no interest couldbe charged for the earlier assessment years even though theregular assessments for such years were framed after 01.6.2003or refund was granted for those years after the said date. TheMemorandum would state that the said decision is not inconformity with the legislative intent of the said provisionnamely Section 234D of the Act and accordingly clarified thatthe provisions of Section 234D of the Act would be applicable toany proceeding, which is completed on or after 01.6.2003irrespective of the assessment year to which it pertains. 19. Thus, what is important to note is that the provisionnamely Section 234D of the Act was made applicable to anyproceedings, which have completed on or after 01.6.2003 https://hcservices.ecourts.gov.in/hcservices/ 19. Thus, what is important to note is that the provisionnamely Section 234D of the Act was made applicable to anyproceedings, which have completed on or after 01.6.2003 https://hcservices.ecourts.gov.in/hcservices/ irrespective of the assessment year, to which, it pertains. Inour considered view, Explanation (2) cannot be read in isolationfrom Sub-Section (2) of Section 234D of the Act and the entireSection should be read as a whole. If we adopt such a procedure,the correct legal position emanates because the chargingprovision is Sub-Section (1) of Section 234D of the Act. In thesaid Sub-Section namely Sub-Section (1), in three places, theexpression 'regular assessment' occurs namely in Section 234D(1)(a), Section 234D(1)(b) and the remaining portion of Section234D of the Act. 20. The question would be as to whether the order passed bythe Assessing Officer dated 20.6.2008 could be taken as aregular assessment. 21. In our considered view, the same cannot be done sobecause an order passed under Section 154 cannot be taken to beframing of a regular assessment for such a year. Further, in ouropinion, the regular assessment in the assessee's case is theassessment order passed under Section 143(3) of the Act on30.3.2001. Admittedly, in the said order dated 30.3.2001, therewas no levy of interest on the assessee. Furthermore, it isclear that Sub-Section (2) of Section 234D of the Act would beattracted only if reduction occurs and it cannot be madeapplicable when there is an increase. 22. The Hon'ble Supreme Court, in the case of RelianceEnergy Limited, has clarified the legal position and has speltout the legislative intent and as to how the provisions ofSection 234D of the Act should be applied. In the said case, itwas held that Explanation (2), which has been inserted by theFinance Act, 2012, in Section 234D of the Act, declared that theprovisions of the said Section shall also apply to an assessmentyear commencing from 01.6.2003 if the proceedings in respect ofsuch assessment year is completed after the said date. The HighCourt, in the said case, was dealing with an assessment of theyear 1998-99. It was an admitted case that the assessment ofthat year was completed prior to 01.6.2003 taking note of thefact that the Supreme Court held that having regard to the legalposition, which has been clarified by the Parliament, byinsertion of Explanation (2) to Section 234D of the Act, in thesaid case, where the assessment was completed prior to01.6.2003, it was held that retrospectivity of Section 234D ofthe Act does not arise. The above decision would be squarelyapplicable to the case of the assessee, as, admittedly, theregular assessment was completed under Section 143(3) of the Actmuch prior to 01.6.2003 i.e. On 30.3.2001. For the abovereasons, we are of the view that no interest can be chargedunder Section 234D of the Act for the assessment year inquestion. 23. In the result, the appeal filed by the assessee isallowed, the order passed by the Tribunal is set aside and thesubstantial questions of law are answered in favour of theassessee. No costs. Sd/- Assistant Registrar(CS-VI) //True Copy// Sub Assistant Registrar To 1.The Income Tax Appellate Tribunal, Chennai 'B' Bench.2.The Deputy Commissioner of Income Tax, Large Tax Payer Unit,Chennai-101. 3. The Commissioner of Income Tax (Appeals), Larger Tax payer Unit, II Floor, 1775, Jawarharlal Nehru Inner Ring Road, Anna Nagar, Western Extension, Chennai - 1014.The Assistant Commissioner of Income Tax, Company Circle VI(4), 7th Floor, New Block, Room No.705, 121, Mahatma Gandhi Road, Chennai - 34+1 cc to M/s.Subbaraya Iyer Padmanabhan, Advocate, S.R.No.87070+1 cc to Mr.T.Ravikumar, Advocate, S.R.No.87075 TCA.No.154 of 2011 SPD(CO)SSM(21/01/2019)